Q:

What type of account is unearned revenue?

A:

Quick Answer

Unearned revenue is usually included in a deferred revenue account for tax-recording purposes. Unearned revenue is revenue for services not yet rendered or goods that have not been distributed to the customer, according to Business Economics. Examples of unearned revenue include prepayment for airline tickets, transportation vouchers and concert tickets. When the ticket is redeemed or paid-for merchandise is shipped, the monies move from an unearned revenue account to sales.

Continue Reading

Full Answer

According to AccountingTools, unearned revenue accounts can be used to estimate the amount of income that a company expects to receive in a certain period. These types of revenue can come from anticipated sales, rental payments made in advance and prepaid insurance. Unearned revenue may also be denoted as prepaid revenue on a company's balance sheet.

AccountingTools notes that unearned revenue accounts are liabilities rather than assets because the company is liable for the amount until the service is redeemed or the product is distributed. For accounting purposes, unearned income is debited from a cash account and credited to the unearned revenue account. Unearned revenue accounts should be reported as liabilities on the balance sheet to prevent the possibility of overstating revenue or income.

Business Economics notes that some prepaid transactions, such as placing a deposit on a rental property, are considered prepayment for potential services and are not classified as unearned income, because the contractual obligations regarding the exchange of money for services is different from a sales transaction.

Learn more about Accounting

Related Questions

  • Q:

    What is the break even formula in accounting?

    A:

    The break-even formula is "sales - costs = 0." The break-even point is when the revenue a product generates is equal to the expenses. It is essentially when a product is profit neutral.

    Full Answer >
    Filed Under:
  • Q:

    How do you prepare a profit and loss statement?

    A:

    Preparing a profit and loss statement for a business entails calculating the net profit by knowing information, such as revenue, net sales, cost of goods, gross margin and operating expense for a certain period of time, as noted by the Edward Lowe Foundation. To prepare a P & L statement, which is also called an income statement, it is important to know what different terms mean and any equations needed to determine the net profit.

    Full Answer >
    Filed Under:
  • Q:

    How do you make a profit and loss sheet?

    A:

    To prepare a profit and loss sheet, start with the total income or revenue of the business or company and subtract the cost of goods or products. This gross profit value must then be subtracted by all the expenses of the company, resulting in a net profit or loss.

    Full Answer >
    Filed Under:
  • Q:

    What is the definition of "revenue allocation"?

    A:

    Revenue allocation is the distribution or division of total income, or revenue, in a business, corporate or government structure. It involves a complex process that entails how and where to allocate revenues in order to ensure the viability of departments and maintain the operating structure of the organization.

    Full Answer >
    Filed Under:

Explore